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Stock Analyst Update

Potential Acquisition Targets for PNC

We still think consolidation makes sense over the long term for the banking sector.

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Given recent comments from PNC Financial (PNC) CEO Bill Demchak, as well as the latest developments with PNC selling its stake in BlackRock (BLK), we think it’s a good time to revisit the topic of mergers and acquisitions in the banking sector. We still think consolidation makes sense over the long term for the sector, and depressed valuations could offer openings for the best-capitalized banks. The offering of PNC’s ownership stake in BlackRock has now been priced at roughly $415 per share after expenses. We calculate this will give PNC a cash inflow of roughly $14 billion.

Demchak recently told CNBC that PNC would most likely be interested in acquiring another bank if the proper opportunity presented itself. Demchak also said, in response to a question about potentially pursuing a merger of equals, that PNC would want to be "the drivers in this outcome" if an acquisition came up. We took this to mean that PNC would only be interested in an acquisition where it could take over. We bring all of this up because it is clear to us that PNC is likely very open to acquiring another bank at the right price, and bank valuations are much cheaper today than they have been for some time. PNC is in a unique position, as it will have some of the highest excess capital levels among our coverage, given the sale of its stake in BlackRock. Of the banks we cover, we view Fifth Third Bancorp as the most likely target, with Huntington Bancshares a close second, and we think KeyCorp could be a wild card candidate. It’s also possible PNC would consider a target that is not under our coverage.

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Eric Compton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.